Internal Revenue Manual: Introduction | IRS Audit Lawyer St Paul

Internal Revenue Manual:  Description & Purpose

Internal Revenue Manual (“IRM”) is the primary, official source of IRS instructions to staff that relate to the administration and operation of the IRS. The rules set in the IRM are meant to provide guidance to the IRS employees (including managers) in their daily work life. The IRM is available on the IRS’ website

From time to time, the IRS also issues interim guidance regarding policy or procedure changes; eventually the IRS would modify IRM to reflect these changes.

Internal Revenue Manual:  Difference Between IRM, IRS Policy Statements and Delegation Orders

One should not confuse IRM with two other types of documents, IRS Policy Statements and Delegation Orders.  While the IRS publishes IRS Policy Statements and Delegation Orders in IRM 1.2.1, et. seq., they are not the same things.

The IRS Policy Statements are basically IRS policies that govern and guide IRS employees in the administration of the IRS itself. The Policy Statements do not contain IRS interpretation of substantive tax provisions or directors to the taxpayers; these are policies just for the IRS staff. Later, the IRS officials would use the Policy Statements to prepare procedures and instructions as part of IRM.

The IRS publishes Delegation Orders in  IRM.12.2, et. seq.. Delegation Orders specify which IRS officials have the authority to approve policies, procedures, documents and actions.

Internal Revenue Manual: Use of IRM

The key issue for US taxpayers is whether they can rely on IRM to invalidate an action of an IRS employee? In other words, if an IRS employee fails to comply with IRS in what otherwise looks like a valid course of action, can the taxpayer challenge the action itself in court?

Generally, the answer is “no”. IRM contains the procedures that govern the internal affairs of the IRS, but these procedures do not have the force of law.  In other words, IRM is suggestive, not mandatory. There is a large array of cases to support this conclusion.  For example, Ward v. Commissioner, 784 F.2d 1424 (9th Cir. 1986) and  Einhorn v. DeWitt, 618 F.2d 347 (5th Cir. 1980) both stated that the IRS’ failure to follow the IRM procedural rules does not invalidate IRS regulations.

In other words, IRM is not binding on the IRS. Its primary use is to be a source of information for the IRS staff and US taxpayers to understand the IRS procedures and and guidelines.  Of course, while nonbinding, the taxpayers can still use IRM to support their arguments and convince an IRS agent to change his position.  This is true not only for US domestic law, but also for US international tax law.

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Sherayzen Law Office is a leader in US international tax compliance, including dealing with the IRS as part of IRS audits.  We have helped hundreds of US taxpayers around the world to bring their tax affairs in full compliance with US tax law, and we can help you!  

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Streamlined Audit Interview | Streamlined Audit Tax Lawyers

In an earlier article, I described the main features of an IRS audit of a voluntary disclosure made pursuant to the Streamlined Domestic Submission Procedures (“Streamlined Submission Audit”). Today, I would like to discuss a very specific feature of this process – Streamlined Audit Interview.

Streamlined Audit Interview: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a special offshore voluntary disclosure program initiated by the IRS in 2014. SDOP allows US taxpayers to remedy their past tax noncompliance concerning the reporting of foreign assets and foreign income while paying a highly reduced 5% Miscellaneous Offshore Penalty. The reason for such a lenient treatment is that the taxpayers must certify that their prior noncompliance with US international tax laws was non-willful.

Streamlined Audit Interview: General Description

Virtually every IRS field audit will involve an attempt to interview the audited taxpayer(s). The concept of a Streamlined Audit Interview describes a situation where an audited taxpayer is interviewed specifically in the context of a Streamlined Submission Audit.

Streamlined Audit Interview: Main Differences from Regular IRS Audit Interview

In many ways, a regular IRS audit interview is similar to a Streamlined Audit Interview. In fact, procedurally, there are very few differences: both audits involve the same type of scheduling procedures, same interview format and, with respect to audited tax returns, very similar questions.

The main difference between a regular IRS audit interview and the Streamlined Audit Interview lies in the fact that the latter will involve the examination of the audited taxpayer’s non-willfulness with respect to prior tax noncompliance – i.e. whether the taxpayer carried his burden of proof to participate in SDOP in the first place. In other words, the difference between the two types of audits is in the substantive legal issues to be discussed.

There are also differences in the potential stakes. A failure for the taxpayer to substantiate his original non-willfulness arguments may lead the IRS to impose heavy penalties and even refer the case to the US Department of Justice’s Tax Division for criminal prosecution.

Finally, a Streamlined Audit Interview is likely to involve a much broader spectrum of issues than just amended tax returns. For example, there could be questions concerning FBARs, sources of foreign account balances, US assets purchased with undisclosed foreign funds, et cetera.

Streamlined Audit Interview: Extensive Preparation Is Necessary

A taxpayer should prepare for a Streamlined Audit Interview. It should be remembered that this interview may happen two or even almost three years from the time when the SDOP voluntary disclosure package was originally submitted. Hence, it is important to refresh the memory of the taxpayer so that he would be able to respond to the IRS questions (instead of constantly saying “I have no recollection”, thereby creating an impression as if he had to hide something).

The taxpayer should also be prepared on how to properly answer a question. Again, the idea is to avoid unnecessary suspicions and an impression that he has something to hide. This why the taxpayer’s answers should be firm and clear in order to eliminate any doubt of their meaning.

In every case, there are going to be weak or negative facts. The temptation to avoid a discussion of negative facts is huge, but it should be resisted. The taxpayer should be prepared to speak of them boldly, explain these facts and show how they fit into his overall non-willfulness arguments.

A taxpayer should never be trained into lying to the IRS or obfuscating the facts. Never, under any circumstances, should an attorney allow his client to commit a perjury, especially in the context of a voluntary disclosure based on the taxpayer’s non-willfulness. The outcome of this unethical strategy is likely to be disastrous (the IRS is likely to find out the truth in any case) and may result in criminal charges filed against the client, even if his original tax noncompliance was non-willful.

Being honest is of utmost importance in a Streamlined Audit Interview. This, however, does not preclude an attorney from employing certain strategies as described above to prevent unnecessary complications by the failure of a taxpayer to express himself clearly or creating a temptation on the part of the IRS to go on a “fishing expedition”.

Contact Sherayzen Law Office for Professional Help With an Audit of Your Streamlined Submission and a Streamlined Audit Interview

If your Streamlined Submission is being audited by the IRS, contact Sherayzen Law Office as soon as possible for professional help. Sherayzen Law Office is a highly experienced international tax law firm that specializes in all stages of offshore voluntary disclosures, including IRS audits of a Streamlined Submission and federal court representation.

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IRS Written Advice Defense: Adequate & Accurate Information | Tax Lawyer

This is the fourth article on the topic of the IRS Written Advice Defense under 26 U.S.C. §6404(f). The first three articles outlined the legal test for the Defense and described the first and the second prongs of the test. In this say, I will briefly discuss the final third prong of the IRS Written Advice Defense – the requirement to provide adequate and accurate description of facts.

IRS Written Advice Defense: Taxpayer Must Provide Adequate and Accurate Description of Facts

When a taxpayer asks the IRS for advice, he must provide adequate and accurate description of his facts based on which the IRS has to make its decision. If the taxpayer fails to supply the IRS with adequate and accurate information, then the IRS Written Advice Defense will fail. See Treas. Reg. § 301.6404-3(b)(4). It should be noted that the IRS “has no obligation to verify or correct the taxpayer’s submitted information.” Id.

This is a much more difficult task that it may appear, because “adequate” really means here a complete set of all material facts that may influence the IRS analysis. If the taxpayer provides only the facts that are favorable and omits the facts which are unfavorable, the IRS advice will not give the taxpayer the protection against imposition of future penalties that the he seeks.

This is why I strongly encourage taxpayers to retain tax attorneys to submit their written request for the IRS written advice. This is especially true in the area of US international tax law.

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Sherayzen Law Office has an extraordinary experience in drafting Reasonable Cause Statements on various grounds, including IRS advice. We have drafted such statements in defense against imposed and potential FBAR, Form 926, 3520, 5471, 8621, 8865 and other IRS penalties.

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